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Rating Action:

Moody's affirms Allen Media's B2 CFR, outlook stable

23 Sep 2020

New York, September 23, 2020 -- Moody's Investors Service ("Moody's") affirmed Allen Media, LLC's (Allen Media) B2 Corporate Family Rating (CFR), B2-PD Probability of Default Rating (PDR), Ba3 Senior Secured Credit Facility Rating and Caa1 Senior Unsecured debt rating. The outlook is stable.

Affirmations:

..Issuer: Allen Media, LLC

.... Probability of Default Rating, Affirmed B2-PD

.... Corporate Family Rating, Affirmed B2

....Senior Secured Bank Credit Facility, Affirmed Ba3 (LGD3) from (LGD2)

....Senior Unsecured Regular Bond/Debenture, Affirmed Caa1 (LGD5)

Outlook Actions:

..Issuer: Allen Media, LLC

....Outlook, Remains Stable

RATINGS RATIONALE

Allen Media, LLC's ("Allen Media" or "the Company") B2 CFR is constrained by moderate governance risk related to aggressive financial policies and the founder and CEO's full ownership and control of the business. The owner is pursuing an aggressive debt-financed growth strategy through M&A, and tolerates high leverage that is currently above our 5.75x tolerance for the rating (Moody's adjusted). Dividends and investments outside the restricted group are also not uncommon, which can reduce the financial flexibility and liquidity profile of the Company. The credit agreement permits incremental leverage, asset transfers/collateral leakage, and the release of guarantees, subject to certain limitations. The profile is also constrained by its small scale, exposure to cyclicality with political advertising rising and falling every other year, and the persistent secular decline in linear-pay-TV which is losing video subscribers at a high rate.

Supporting the credit profile are a diverse group of media properties, including the Weather Channel, fifteen highly ranked "Big 4" affiliate broadcast television stations in 11 markets, and 7 cable networks of Entertainment Studio programming. The company's programming reaches over 150 million cumulative subscribers. The content produces advertising (political, core, and digital), recurring/long-term contracted (broadcast) retransmission fees and (cable net) affiliate fees. Allen Media also benefits from an asset-lite business model, which produce good margins and positive free cash flows. Also supporting the credit profile are social factors, primarily societal changes that are driving positive developments in operating performance. In particular, the Company has gained distribution and a greater share of the advertising spend as a result of being a minority-owned media company.

The company has good liquidity, supported by cash and positive internal cash flows, covenant-lite loans, and a very favorable maturity profile. Additionally, with only a partially secured capital structure and relatively divisible assets, we believe some alternate liquidity could be generated by the sale of assets.

Moody's instrument ratings reflect the probability of default of the company (as reflected in the B2-PD Probability of Default rating) and an average recovery of approximately 50% in our assumed default scenario, in the aggregate, across all creditors given the mixed capital structure with both senior and junior claim priorities. The first lien senior secured credit facilities are rated Ba3 (LGD3), two notches above the B2 CFR given the losses expected to be absorbed by junior capital. The unsecured notes are rate Caa1 given its subordination in the capital structure. A further material increase in the proportion of secured debt in the capital structure could pressure the ratings on the senior secured credit facility.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Allen Media experienced a significant deterioration in operating performance in the second quarter of the year, due primarily to the impact of COVID-19. However, we expect significant improvement in operating performance over the next several quarters as the economy recovers from the pandemic and the company benefits from broader distribution of its programming.

Coupled with incremental debt issuance, the company's leverage ratio has risen above our rating tolerance. However, we expect a number of favorable developments related to new distribution agreements and increased share of advertising spend as a result of being a minority-owned media company. The contribution of recent acquisitions and the benefits of scale are also driving higher operating leverage. Through organic EBITDA growth and voluntary debt repayment, we expect leverage to return inside our tolerances over the next 12-18 months.

The stable rating outlook reflects Moody's expectations that revenues will average near $550 million over the next 12-18 months. We assume EBITDA margins will range between 35% to 45%. We project leverage will fall inside our tolerances before year end 2022. Free cash flows to debt (averaging $1 billion) will rise near 10%. We also expect the Company to maintain good liquidity. All figures are Moody's adjusted, unless otherwise noted.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

We would consider positive rating action if revenues and profitability grow, leverage (Moody's adjusted total gross debt / 2 year average EBITDA) is sustained below 4.0x, Moody's adjusted 2 year FCF / total gross debt) is sustained in the high single digits and the company demonstrates a track record and a commitment to more conservative financial policies.

We would consider a negative rating action if leverage (Moody's adjusted total gross debt / 2 year average EBITDA) is sustained above 5.75x, or free cash flow to debt (Moody's adjusted 2 year FCF / total gross debt) falls below 2.5%. We would also consider a negative rating action if financial policy turned more aggressive, liquidity deteriorated, or operating performance weakened materially on a sustained basis.

The principal methodology used in these ratings was Media Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1077538. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Allen Media, LLC is a minority-owned, privately-held diversified media company that owns and operates The Weather Channel, a leading news channel for the past 38 years, seven additional 24-hour high-definition television networks and fifteen highly ranked Big 4 broadcast television stations, in 11 markets. The Company provides local weather, news and sports content with Emmy Award-winning and nominated shows that reach over 150 million subscribers. It produced approximately 5,000 hours of live weather programming and over 360 hours of weekly local news in 2019; distribute sports, primetime and entertainment content across broadcast television markets through our affiliations with ABC, CBS, FOX and NBC networks (collectively, the "Big Four" networks); and own over 4,000 hours of original programming across multiple genres through Entertainment Studios, its television production and distribution business which produces and distributes 41 television programs including seven HD cable networks - Cars.TV, Comedy.TV, ES.TV, Justice Central.TV, Recipe.TV, MyDestination.TV, and Pets.TV).

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jason Cuomo
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Lenny J. Ajzenman
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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